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Goodyear Tire & Rubber Company (GT) |
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WIKI ANALYSIS
The Goodyear Tire and Rubber Company (NYSE:GT) is a vertically integrated developer, manufacturer and distributor of tires with 96 manufacturing facilities in 28 countries.
GT, along with its subsidiaries, is principally engaged in the development, manufacture, distribution and sale of tires and related products and services worldwide; it also manufactures and markets rubber-related chemicals for range of applications.[1]
Company Overview
Goodyear categorizes its company's business segments by geographic region. For each geographic region, Goodyear continues to subdivide each region into the two original segments.
Tire Sales by Type
- Original Equipment Tires (26.4% of FY2010 Total Tire Sales) are new tires bought by manufactures to fit the specific needs of its vehicles. Within this category, Goodyear produces produces tires for passenger cars, light trucks, trucks and specialty vehicles.
- Replacement Tires (73.6% of FY2010 Total Tire Sales) consist of tires bought by consumers to replace the tires on their vehicles.
Tire Sales by Geographic Segment
North American Tire (37.5% of FY2010 Total Tire Sales)
North American Tire is one of GT's largest segment. The segment develops, manufactures, distributes and sells tires and related products and services in the United States and Canada. North American Tire manufactures tires in eight plants in the United States and two plants in Canada.[2]
North American Tire primarily manufactures and sells tires for automobiles, trucks, motorcycles, buses, earthmoving and mining equipment, commercial and military aviation and industrial equipment, and for various other applications. It is also a major supplier of tires to most manufacturers of automobiles, motorcycles, trucks and aircraft that have production facilities located in North America. Goodyear's major competitors in North America include Bridgestone and Michelin.
Europe, Middle East and Africa Tire (39.8% of FY2010 Total Tire Sales)
Europe, Middle East and Africa Tire (“EMEA”) develops, manufactures, distributes and sells tires for automobiles, motorcycles, trucks, farm implements and construction equipment throughout EMEA. It is also a significant supplier of tires to most manufacturers of automobiles, trucks and farm and construction equipment located in the area.[3]
EMEA’s main competitors are Michelin, Bridgestone, Continental, Pirelli, several regional and local tire producers and imports from other regions, primarily Asia.[4]
Latin American Tire (11.4% of FY2010 Total Tire Sales)
GT's Latin American Tire segment manufactures and sells automobile, truck and farm tires throughout Central and South America and in Mexico, sells tires to various export markets, retreads and sells commercial truck, aviation and OTR tires, and provides other products and services. Latin American Tire manufactures tires in six facilities in Brazil, Chile, Colombia, Peru and Venezuela. Significant competitors include Pirelli, Bridgestone, Michelin and Continental.[5]
Asia Pacific Tire (11.8% of FY2009 Total Tire Sales)
GT's Asia Pacific Tire segment manufactures and sells tires for automobiles, light and medium trucks, farm, construction and mining equipment and the aviation industry throughout the Asia Pacific region. Asia Pacific Tire manufactures tires in eight plants in China, India, Indonesia, Japan, Malaysia, Taiwan and Thailand. This segment’s major competitors are Bridgestone and Michelin.[6]
Key Trends and Forces
Despite the Use of Derivatives, Fluctuating Raw Material Costs Hamper GT's Profitability
Together oil derivatives, in particular naptha, and natural rubber, account for about 88% (60% oil derivatives and 28% rubber) of a tire's raw material composition. Oil Prices have tripled and rubber prices have quadrupled in the past 3 ½ years. Natural rubber prices have been driven up by an increasing demand from China and poor weather conditions. Continued demand from China and a slow recovery of the rubber industry could keep rubber prices elevated and put pressure on Goodyear's profits.
Higher oil prices also mean higher gas prices, causing a decrease in Goodyear's original equipment (OE) tire sales. Higher gas and utility costs also slowed tire industry growth by decreasing income power for the low and middle income families. If oil prices decrease, then Goodyear could see greater profits and better industry growth.
Because a Weak Dollar Discourages Imports from Abroad, a Weak Dollar Drives Profits for GT
A CRT Capital Group analyst has called Goodyear "...poster child for people that benefit from a weak dollar."[7] This is true for two main reasons: decreased imports and improved currency effect on foreign sales. A weak dollar will greatly discourage imports from abroad. The pricing advantage of foreign firms that comes from cheap labor has been offset recently by the increase in their exchange rates and increase in dry bulk shipping rates. Since the majority of tire sales come from outside of North America, a weaker dollar benefits their bottom line in absolute terms.[8] These incoming cash flows will increase in nominal terms because of the foreign currency appreciation.
Goodyear's Sales are Highly Dependent upon International Operations
The North American Tire Segment makes up over a third of revenue for GT.[9] In the recent years, Goodyear's sales have increasing become more and more dependent on its International operations. This is partly because Goodyear's operations in North America continuously have low or negative operating margins. On the other hand, although in China, there are only 12 passenger cars per 1000 inhabitants compared 500 passenger cars per 1000 inhabitants in Western Europe, the number of car owners in China have been drastically increasing. These figures are consistent with other BRIC countries, which shows how since both Asia and Latin America have high growth potential, their development highly impacts Goodyear’s revenues.
Competition
Goodyear's top competitors are Michelin and Bridgestone. Goodyear is the third largest by market share behind Bridgestone and the leader Michelin. Both competitors are based overseas, Michelin in France and Bridgestone in Japan. Michelin is the leading producer in Europe and also is the leading producer in China. Bridgestone is the leading producer in Japan. Michellin, has a less favorable cost base than Goodyear but can charge higher prices due its superior technology. Through Bridgestone's combination of marketing and product mix it has been able to increase its sales dramatically in comparison to its competitors while charging higher prices.
| Company | Net Profit Margin | Operating Margin | EBITD Margin | Return on Average Assets | Employees |
|---|---|---|---|---|---|
| Goodyear | (-0.87%) | 0.04% | 5.97% | (1.09%) | 72,000 |
| Michelin | 5.86% | 9.47% | 14.81% | 5.80% | 105,057 |
| Bridgestone | 3.67% | 3.60% | 11.56% | 3.81% | 139,822 |
References
- ↑ GT Business Summary
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 8
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 6
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 7
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 8
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 9
- ↑ http://www.bloomberg.com/apps/news?pid=20601103&sid=az4RrjXAfXCQ&refer=us
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 1
- ↑ Goodyear Tire & Company 2009 Form 10-K, Page 8
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